Crypto Taxation for U.S. Residents
Every U.S. resident who sold, swapped, spent or was paid in digital assets has something to report. Since 2025 the exchanges report too, and the IRS compares the two. Gaps that went unnoticed for years are becoming visible.
We have advised on digital assets since 2017. We handle crypto reporting, past noncompliance, holdings on foreign exchanges and in foreign foundations, and the loss rules when crypto is stolen.
Property, not currency. Every disposal is a taxable event.
The IRS treats digital assets as property. Selling for dollars, swapping one token for another, paying for goods or services and receiving coins as payment are all reportable, and New York follows the federal treatment.
Brokers began reporting gross proceeds on Form 1099-DA for 2025 transactions, and they report cost basis for assets bought and held with them from 2026. Basis is now tracked wallet by wallet rather than across all accounts. A return that does not reconcile to those forms draws a notice.
Crypto held on a foreign exchange, or through a foreign foundation or trust, adds a second layer of forms with their own penalties. When crypto is stolen, whether the loss is deductible depends on how the theft happened and when recovery became unlikely. These are the questions clients most often bring to us.
The numbers that frame crypto reporting.
From IRS forms, instructions and published guidance, and the Internal Revenue Code.
Brokers’ penalty relief for good-faith 2025 Forms 1099-DA does not extend to taxpayers’ returns. The basis identification relief in Notice 2025-7 was extended through December 31, 2026 by Notice 2026-20. Sources: IRS, Digital Assets; IRS, Instructions for Form 1099-DA; IRS, Rev. Proc. 2024-28; IRS, Notice 2026-20; IRS, Instructions for Form 3520; 26 U.S.C. § 6662; 26 U.S.C. § 6501; N.Y. Dept. of Taxation and Finance, TSB-M-14(5)C.
What we do in crypto taxation.
Annual reporting and basis
Form 8949 and Schedule D, Schedule 1 income from staking, mining, forks and airdrops, and Schedule C where there is a business. Basis records built wallet by wallet and reconciled to Forms 1099-DA.
Unreported crypto and amended returns
Years in which crypto was left off the return. We reconstruct the history from exchange and chain records, quantify the tax and choose the correction path on the facts.
Streamlined and voluntary disclosure
The IRS voluntary disclosure practice, with its virtual currency section on Form 14457, where willfulness cannot be ruled out. Streamlined procedures where foreign accounts are involved and the failure was non-willful.
Foreign exchanges and foreign foundations
FBAR and Form 8938 analysis for accounts abroad, and Forms 3520, 3520-A or 5471 for a foundation or trust that holds digital assets. Classification first, because it decides which forms apply.
Stolen crypto and worthless tokens
Whether a theft, hack or scam loss is deductible, in which year and in what amount, and how to document it on Form 4684. Why a drop in value or a frozen account is not yet a loss.
IRS letters, audits and summonses
Responses to IRS notices about digital assets, representation in examinations, and advice when an exchange has received a John Doe summons for its customers’ records.
How a crypto tax matter runs.
Records first. The rest follows from them.
Inventory
Every exchange, wallet, custodian and foreign structure, with the dates each was opened and funded, reviewed under privilege.
Reconstruct
Transaction history pulled from exchange exports and chain data, basis assigned wallet by wallet, and income from rewards and airdrops identified.
Decide
Current-year reporting, amended returns, streamlined or voluntary disclosure, or a reasonable cause position, chosen on the facts and the exposure.
File and defend
Returns and information forms filed, questions from the IRS answered, and penalties contested where the facts support it.
Lawyers who plan the structure and defend it.
Structure before the move, the investment or the sale.
Residency timing, entity choice, trusts and elections are decided together, with the home-country result in view. We coordinate with your accountants and counsel abroad so the plan works in both places.
Compliance and controversy in the same hands.
Foreign asset reporting, penalty exposure, streamlined and voluntary disclosures and IRS examinations. The firm also litigates and arbitrates, so a plan is written knowing how it will be tested.
Act before the next notice, not after.
Disclosure options close once an examination begins or the IRS already holds the exchange’s records.
- Download full transaction histories from every exchange now; closed accounts are harder to recover later
- Keep the IRS letter and its deadline, and call a lawyer before responding
- Preserve wallet addresses, acquisition records and proof of basis for every holding
- Report a theft to law enforcement and keep the report; it supports the loss claim
- Respond to a letter from a “Digital Assets Compliance Portal”; the IRS has flagged it as a scam
- Move assets off an exchange to make them harder to find
- File a quiet amended return for one year when several are affected
- Deduct a loss because a token fell in value or a platform froze withdrawals
From the firm’s writing.
Cryptocurrency and the Dreaded Amended Return
When to amend for crypto left off earlier returns, and how.
Read the articleIRS Voluntary Disclosure for Foreign Assets and Crypto
When the voluntary disclosure practice is the right path.
Read the articleCrypto Fraud Lawyer: What to Do When Your Crypto Is Stolen
The first steps after a theft, and the records a later tax position needs.
Read the articleFrequently asked.
Yes. Every filer answers it. It asks whether during the year you received a digital asset as a reward, award or payment, or sold, exchanged or otherwise disposed of one.
You may answer no if you only held digital assets, bought them with dollars, or moved them between wallets you own without paying a fee in crypto.
Yes. An exchange of one digital asset for another is a disposition, and the gain or loss is the value of what you received less your basis in what you gave up. Like-kind exchange treatment does not apply to digital assets.
As ordinary income when you gain control of the coins, at their value that day. The IRS said so for staking in Revenue Ruling 2023-14 and for hard forks and airdrops in Revenue Ruling 2019-24, and the Tax Court reached the same result on staking rewards in a 2026 decision. That value becomes your basis in the coins.
Sometimes. IRS Chief Counsel concluded in 2025 that losses from a compromised account, a fraudulent investment platform or a phishing scheme can be deducted as theft losses from a transaction entered into for profit, in the year you discover the theft and have no reasonable prospect of recovery.
The deduction is your basis in the coins, not their value when taken. Losses from romance or extortion schemes, with no profit motive, were treated differently. A drop in value or a frozen account is not a theft loss.
FinCEN has said that an account holding only virtual currency is not currently reportable on the FBAR, that it intends to change the rule, and that an account also holding cash or other reportable assets is reportable now. The IRS has not addressed digital assets in its Form 8938 guidance.
We review each account and often recommend reporting where the position is uncertain. The penalties for omission are larger than the burden of filing.
It depends on how U.S. law classifies the foundation. If it is treated as a trust and you are a U.S. owner or beneficiary, Forms 3520 and 3520-A apply, with penalties of 35 percent of unreported transfers or distributions. If it is treated as a corporation, Form 5471 may apply instead.
A gift from a foreign person of more than $100,000 in a year is reported on Form 3520 as well.
The path depends on the years, the amounts and whether the failure was willful. Amended returns, the streamlined procedures where foreign accounts are involved, and the IRS voluntary disclosure practice each fit different facts.
A voluntary disclosure counts as timely only if it arrives before the IRS has your information from an exchange or a summons. Timing matters.
Other areas of the practice.
Inbound and outbound services, from pre-immigration planning to offshore compliance. Back to the overview.
Crypto on your returns, or missing from them?
A confidential, privileged consultation with crypto tax lawyers in New York City. We will tell you what must be reported, what can be corrected and in what order.